District dips into savings to make budget

MUSKEGON -- School officials often feel they're forced to look into a crystal ball when preparing school budgets -- especially since the budgets usually are approved before state funding is determined by the Legislature.

It turns out that Muskegon Public Schools officials' "guesstimates" nearly hit the bull's-eye last year. Out of a $65 million general fund, they came remarkably close -- within $15,000 -- to predicting expenses, according to a recently completed audit of the 2007-08 school year.

They came within $269,000 in predicting revenues.

"Sometimes, things just work out right, and this time things did," said Gary Privasky, executive director of administrative services and finance for the school district. "When you put a budget in on July 1 and end up June 30 within 1 percent, that's pretty good."

Unfortunately, they overestimated revenues and underestimated expenses, meaning they ended up taking more out of the district's savings than predicted.

The district ended up taking $666,700 from the fund balance, which wound up at $3.7 million at the end of the year. That dropped the savings account balance by 15 percent, from $4.4 million at the beginning of the school year.

The fund balance is expected to drop by another $557,000 by the end of this year. But, as the audit shows, numbers at this stage of the year are far from etched in stone.

Overall, the district received a positive audit. There were some accounting procedures that staff didn't follow properly, but they weren't of much concern, according to Don Swick, an accountant with Brickley DeLong Certified Public Accountants, which conducted the audit.

The district did have a continued issue of not properly accounting for middle school athletic event gate receipts. That same issue arose in the audit of the 2004-05 school year, so Privasky said special training will be given to those handling the receipts.

Superintendent Colin Armstrong noted there were "five to seven" accounting issues the district needs to work on, but he praised staff for a good audit. Auditors found the district needs a better way to keep track of capital assets and was not keeping all records required for federal grants.

Swick said the district was easy to work with, providing well-organized books, receipts and other documents.

The audit indicated that a main reason for the drop in revenues was a continued decrease in enrollment. In 2007-08, the official student count fell by 80 students, according to the audit. With the state providing the district a $7,708 "foundation allowance" per student, the enrollment drop cost the district $620,000.

"In 2007-08, the increases in salaries and benefits had to be partially financed with reductions of costs, since the projected per-pupil foundation allowance would not cover these increases," the audit noted.

Of the total $71.6 million in revenues, which in addition to K-12 education paid by the general fund included athletic, food service and other accounts, $41.6 million came from state government, $13.3 million came from local sources including taxpayers and $12.6 million came from the federal government.

The audit shows the district spent $35 million on instruction, $26 million on support services, $2.6 million on food services and $663,000 on athletics.

Auditors noted that the school district had $11.3 million in bank accounts as of June 30 -- $6.5 million of which was exposed to risk in the event of a bank failure.

Privasky told the board the district has $5 million deposited at Community Shores Bank, which took out a $5 million insurance policy to protect those funds. He said he felt secure in investments through other banks, because they were simply performing as "pass-through agents."

However, he said the district is considering moving certificates of deposit, which at any given time range between $1 million and $1.5 million, to Community Shores.